FICO SCORE - credit mix, mortgage, new credit, credit history

This is the world of credit scoring, where your three-digit number called your "fico scores" pretty much determine whether you'll qualify for a loan and/or at the best interest rates on a house or car of your dreams.

Fair, Isaac & Co. of San Rafael, Calif., creator of the FICO credit-scoring system, and the leading credit bureaus are making these scores - which range from 300 to 900 - available at their Websites for a nominal fee. Be sure to ask specifically for the scores when soliciting a credit report - yes, sometimes they keep the credit scores secret.

But even though the scoring process may seem hard to fathom, knowing your FICO number is helpful in figuring out how to get the best deal on many types of loans.

It is important information because all mortgage loans are sorted on the basis of FICO scores. Lenders are increasingly relying on these scores. Credit score dependence has deepened since the FICO model was established in 1988 as an increasing number of lenders moved to automated-loan approvals. Many loan products, including some home-equity loans and auto loans, are based almost entirely on your FICO score.

Armed with your FICO number, you/we will be able to review your credit practices and begin making adjustments to boost your scores. You may be surprised to find out that some moves may actually be counterproductive - such as closing out a little-used credit card dating back ten or more years, which shortens your credit history. You could learn that searching often for the best online mortgages can have a deleterious effect on your credit score, suggesting a hunger for debt which might unnerve potential lenders. There are those in the industry who feel that shopping for a good home or auto loan is simply good business and shouldn't be avoided.

Although most lenders will be pleased if your score is 700 or higher, you can still qualify for an FHA or VA home loan with a 620+ fico - at perhaps a higher interest rate.

What can you do to improve your score? First, let's acquaint you with how your score is calculated:

Payment history. This is the key determinant of your score: 35% of the number is based on whether you've paid your bills on time. Fortunately, most consumers do so. Sixty percent of borrowers score 700 or higher, which is considered good, if not excellent; however, only 13 percent fall below 600.

Debt levels. Your total amount of debt, including balances on credit cards, car loans, and student loans, accounts for the next 30% of your score. It is best to keep balances low in general, especially on revolving debt. If you pay off all accounts and loans with your ready cash, your FICO score will increase only slightly.

Yes, there are many quirks in the FICO system. Everyone would agree paying off revolving debt is a good thing. But all things being equal, having a little balance on a line of credit is a little better than no balance at all. A zero balance provides less information to the FICO scoring model about one's ability to manage debt than keeping a small balance.

Credit history. How long you have had credit counts for 15% of the FICO score. In addition to keeping credit card balances at zero, many cardholders go the extra step and close out old accounts. While financial planners say this is a good move, it could end up lowering your score. FICO scores take into account both the age of your oldest account and the average age of all your accounts, By closing out old cards, you may inadvertently lower your score by shortening your credit history.

Closing old accounts can hurt in another way. The FICO model rewards consumers who maintain a big cushion between their outstanding balances and their credit limits-say, $1,000 owed on a card with a $10,000 limit. But close out an old account with no balance, and you will also reduce the overall amount of credit available to you. At the very least, don't try to consolidate your accounts into one or two cards if that pushes you over the limits on those cards.

New debt. When interest rates are falling, consumers often shop for lower-rate cards. While this may reduce your monthly minimum payments, it might hurt your score, of which 10% is based upon your application history. Each time you apply for credit, the lender pulls a credit report. All this shopping around makes it look as if you are hungry to take on more debt. Lenders don't want someone who constantly jumps from lender to lender, rather they want someone who establishes a line of credit and keeps it.

Credit mix. The final 10% of your score is based on how much credit you have and the types of debt you have incurred. Having too many accounts-say, a card from every store in town-could be harmful to your score.

Now that the scores are becoming more widely available, lenders and credit counselors advise borrowers knowing them. Mistakes do occur. Perhaps a lender credited an auto payment to the wrong account, or your payment got lost in the mail. It pays to recognize these instances and correct them immediately.

Keep in mind that not all lenders report to the three credit bureaus. Because some information may be lacking from a credit report, the FICO score you get through Equifax may not be the same as the FICO scores associated with your Experian or Trans Union credit reports. Lender underwriters generally take the middle score of the three. Some have been know to average them out (add them together and divide by 3).

The bottom line: Take the same active role in managing your credit score as you would with any other financial matter. It is up to YOU to contact and negotiate with the reporting lenders after you dispute any submissions and then follow up.